What's the difference between Navitas and IDP?

Question

Hi James, About Navitas. You haven't addressed why universities want to outsource this lucrative operation to Navitas. My take is it's essentially a distribution business which requires scale. If a university needs to recruit students from 10 countries and each country has 10 major cities, it needs to operate 100 offices, not a core operation the university wants to run. If Navitas can represent 20 university, that 100 offices fixed cost is now 1/20. It looks like it has significant moat. Do you agree with this reasoning? But then, it begs the question: what makes an unversity prefer Navitas' model over IDP's, which also has the scale? (I understand there is the issue with shareholding. Lets ignore that for the sake of this discussion.) On business of student placement alone, it looks like the difference between Navitas and IDP is Navitas operates also an on-campus foundation year curriculum. Why does an university want to outsource this?

Answer

Hi John. Great question. It’s a fundamental difference between Navitas and IDP Education (ASX: IEL) that Navitas provides first-year education to students before they enter university proper. IDP simply sources international students on behalf of universities. You can see this in the difference in business model – Navitas charges something like $20,000 to students for their first year education (they pay fees to Navitas). IDP receives something like $2,000 for each student (from the university) for each student that commences. So they’re quite different business models.

Otherwise I think you’re thinking about the student sourcing aspect more or less correctly. Navitas has a network of student recruitment staff globally although it’s not as extensive as IDP’s, whose business is partly student sourcing (not education itself).

My understanding is the students are also somewhat different. Navitas students usually need to improve their English, which they can do in their first year of the (Navitas-operated) foundation course. IDP-sourced students go straight into the University student mainstream (whether there’s much practical difference in English ability is an interesting question).

So why do universities ‘outsource’ this? Well, outsourcing isn’t quite the right word because it might imply they used to do it themselves. I’m not aware of any universities that once provided foundation courses in-house who subsequently outsourced it.

I think the main answer to your question is that some universities struggle to attract international students because they are second/third tier and therefore not as well known outside Australia. Navitas is therefore the ‘bridge’ which acts to match students to the appropriate course and university environment. The first tier/sandstone university/group of eight are not Navitas partners because Navitas concentrates on smaller/less well-known institutions.

I also gather that some universities just aren’t very good at the marketing side of it (and, as you say, sourcing requires economies of scale anyway). Australian universities easily find local students because they’re already aware of reputations/degrees/campuses, whereas international students aren’t. Then there’s the issue that university academics don’t necessarily want to be de facto English teachers or hold students’ hands. It is a lot more work and therefore time-intensive (hence why Navitas charges high fees).

Some universities do operate in-house foundation courses but it seems many prefer to have someone else do it – someone like Navitas or competitor Study Group. It is slightly more of a business activity than a research/academic activity, and most universities prefer to focus on the latter.

It’s possible I’m missing a major reason here but that’s my general understanding thus far. And with Macquarie’s decision to ‘in-source’ its foundation program not going so well (at least according to Navitas management) it’s a disincentive for other universities to go it alone. Thanks for the great question and I hope that helps. Cheers, JG

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